Barnes & Noble Doubles Down, Scuttles Microsoft Deal

Barnes & Noble Doubles Down, Scuttles Microsoft Deal

Bookseller changes strategy, will keep updating NOOK

As part of a quarterly earnings announcement this week, beleaguered bookseller Barnes & Noble revealed that it would reverse course on its previous plan to sell off the NOOK eBook platform. This change scuttled a planned deal with Microsoft, which will now seek to expand its current partnership with Barnes & Noble.

"The company intends to continue to design and develop cutting-edge NOOK black-and-white and color devices," NOOK Media CEO Michael P. Huseby said. "We will continue to offer our award-winning line of NOOK products, including NOOK Simple Touch, NOOK Simple Touch with Glow Light, NOOK HD, and NOOK HD+ at the best values in the marketplace. At least one new NOOK device will be released for the coming holiday season, and further products are in development."

Related: "Microsoft Emerges as Possible Suitor in Wake of Nook Drop-Off"

That last bit is a big reversal: Barnes & Noble had previously announced plans to exit the color tablet market and sell off its NOOK digital assets, although it originally planned to keep selling the black-and-white ebook readers at its retail stores.

In May, rumors emerged that Microsoft was set to buy Barnes & Noble’s NOOK digital assets for $1 billion. The firm had previously invested $300 million in NOOK Media and owns a 17 percent share of the business. With this week's strategy reversal, however, that deal has been scuttled. So Microsoft is now seeking to expand its current partnership, perhaps with a bigger investment and ownership stake.

As for Barnes & Noble, the NOOK business is still falling off a cliff—the firm noted that revenues in the business declined 20 percent year-over-year in the most recent quarter, for example—with a loss of $55 million in the quarter. In fact, it seems as if the business would be much healthier if the NOOK simply disappeared.

It appears that the real trigger for this change wasn't a reassessment of NOOK's strategic importance but rather that Barnes & Noble chairman Leonard Riggio has ended his efforts to purchase the Barnes & Noble retail business. "I believe it is in the company’s best interests to focus on the business at hand," he said. "Right now our priority should be to serve the more than 10 million customers who own NOOK devices, to concentrate on building our retail business, and to accelerate the sale of NOOK products in our stores, and in the marketplace."

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